LONDON (Reuters) – Oil prices fell on Monday, dragged down by concern over demand in China after the coronavirus breakout, though the possibility of deeper crude output cuts by OPEC and its allies offered some price support.
Brent crude LCOc1 was down $1 at $55.62 a barrel by 1434 GMT, its lowest since January last year.
U.S. West Texas Intermediate (WTI) crude CLc1 fell 58 cents to $50.98 after hitting a session low of $50.42, also the lowest since January last year.
As the coronavirus outbreak hit fuel demand in China, the world’s biggest crude oil importer, refiner Sinopec Corp (0386.HK) told its facilities to cut throughput this month by about 600,000 barrels per day (bpd), or 12%, the steepest cut in more than a decade.
Independent refineries in Shandong province, which collectively import about a fifth of China’s crude, cut output by 30-50% in a little more than a week, executives and analysts said.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are considering a further 500,000 bpd cut to their oil output, three OPEC sources and an industry source told Reuters.
The Wall Street Journal reported that another option being considered would involve a temporary cut of 1 million bpd by Saudi Arabia to jolt oil markets.
The OPEC+ group is also considering holding a ministerial meeting over Feb. 14-15, one of the OPEC sources said, ahead of a previously scheduled March meeting.
“The market needs assurances that the supply/demand equation remains in balance for prices to hit a floor. This suggests a commitment from OPEC not just to extend oil supply cuts, but even implement deeper ones beyond March,” said FXTM analyst Hussein Sayed.
Iranian Oil Minister Bijan Zanganeh said that the oil market is under pressure, with prices dropping below $60 a barrel, and “efforts must be made to balance it”.
Ratings agency Fitch on Monday said that the coronavirus epidemic could push the global oil market into surplus and that OPEC+ may need to cut production further if the outbreak lasts for several months.
On the first day of trade in China after the New Year holiday, investors erased $393 billion from the nation’s benchmark equities index, sold the yuan currency and dumped commodities as coronavirus fears dominated markets.
“Clearly travel restrictions and the extended shutdown of large parts of the Chinese industrial sector have weighed on oil demand and this is reflected in the weakness that we are seeing in ICE Brent time spreads,” said ING analyst Warren Patterson.
The premium of the first-month Brent contract to the second-month contract LCOc1-LCOc2 narrowed to 9 cents a barrel on Monday, from 70 cents a month ago, indicating that traders are not concerned about supply tightness because of the demand impact of the coronavirus.
Reporting by Bozorgmehr Sharafedin in London, Additional reporting by Florence Tan in Singapore; Editing by Edmund Blair and David Goodman